Grant Thornton director Davyd Fisher advises employers to harness international remote working but be mindful of the complex issues involved
The Grant Thornton Global Mobility team has spoken to many organisations trying to balance the great benefits of flexibility with efficient processes to mitigate the common risks posed by employees working cross-border. This could be companies dealing with their first few requests, aware of the precedents these will create, or proactively creating a remote working policy to enhance their employee offering.
The risks for employers
The risks of international remote work are varied and complex. Employees who work in a different jurisdiction to their employer risk generating new obligations abroad for themselves and for their employer. Due to the big differences between rules, rates and administration, this can lead to additional requirements for HR, finance, tax and payroll teams.
Social security rules and agreements differ to tax, adding another dimension to compliance work required. Similarly for companies, the activities of people can affect corporate reporting and tax payment obligations. Concerns also spread outside of tax, with complications such as immigration requirements, employment law, data protection and cyber security, employee benefits, software licensing and regulatory obligations all need considering in the context of relevant jurisdictions.
The three main direct tax and social security risks that employers should be aware of are:
- Permanent Establishment trigger: a corporate tax presence of the employer is inadvertently created in the overseas territory by virtue of the employee working remotely.
- Employment Tax withholding: the employee creates an obligation on the employer to withhold employment taxes in the host location.
- Social Security withholding: the employee creates an obligation on the employer to withhold social security in the host location.
Depending on the territory, each of the above obligations often has their own set of complex rules and considerations to follow, which then may interact. Specific advice is therefore needed based on the country in which the employee is remote working and it is common for employers to have a ‘green’ or ‘red’ list of territories where advice has been sought and the obligations (if any) have been clarified.
As a result, companies must take time to increase their awareness of the risks which may arise and develop an approach that works for them and their employees. Having an international hybrid working policy is a great first step, and developing a quick process to risk assess new requests enables firms to focus their attention on key risk areas or key employees.
Increase in international remote working driven by employee demand
In our most recent webinar, The impact of post-Covid-19 working on tax, a poll showed that 71% of the businesses in attendance had seen an increase in what we refer to as ‘new mobilities’ – meaning arrangements for employees such as remote working, employer of record, or hybrid working.
This trend was also reflected in the Office for Tax Simplification (OTS) hybrid and distance working report (published Summer 2022), which summarised the experiences of 425 people and businesses. It was reported that all the large businesses surveyed had, due to employee demand, introduced policies which enabled their people to work for a short period in another country from their usual place of work.
While the amount of time permitted to work overseas varied, employers typically permitted overseas stays of 10-30 days per year, with a small number being prepared to consider longer periods of up to 90 days. The most common pattern the OTS observed was up to 20 overseas working days in a year.
Most employers with longer term overseas workers had established a local subsidiary to employ individuals or asked an existing subsidiary to employ them. A small number used global employment companies and/or an ‘employer of record’ to hire the individual on their behalf. While some respondents felt these intermediaries provide a useful service, others cautioned that risks would remain with the ultimate engager.
Although it can seem daunting, businesses do not need to wait for fully formed policies or plans which eliminate risk. Great progress can be made just with careful tracking of people working cross-border, and a requirement that people seek permission from a central team before working internationally. Different levels of risk can be applied to different groups, based on risk factors such as seniority, income level, duties performed and existing connections to the host country.
As experience grows you may get a better sense of your key risk areas or jurisdictions and can then undertake specific detailed review, targeting your advisory spend where it is most needed.
Davyd Fisher a director in Grant Thornton UK LLP’s global mobility team